23 Jul 2014 AMC - Market's rally led by bounce from Russells

23 Jul 2014 AMC - Market's rally led by bounce from Russells

Market Summary 

European Markets Closing Prices

European markets are now closed; stock markets across Europe performed as follows:

·         UK's FTSE: + 1.0%

·         Germany's DAX: + 1.2%

·         France's CAC: + 1.6%

·         Spain's IBEX: + 1.7%

·         Portugal's PSI: + 1.1%

·         Italy's MIB Index: + 2.2%

·         Irish Ovrl Index: + 1.2%

·         Greece ASE General Index: + 0.1%

Before Market Opens 

S&P futures vs fair value: +6.70. Nasdaq futures vs fair value: +18.50.
The S&P 500 futures trade seven points above fair value.

The major Asian indices ended on a higher note. The Japanese government lowered its 2014 growth forecast to 1.2% from 1.4%, citing weak demand from emerging markets. Elsewhere, Reserve Bank of Australia Governor Glenn Stevens reiterated the central bank's view that a period of stable rates is likely, and that animal spirits are needed to help the real economy. 

·         Economic data was limited: 

o    Japan's All Industries Activity Index rose 0.6% month-over-month (forecast 0.7%; prior -4.6%) 

o    Taiwan's unemployment rate held at 4.0% 

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·         Japan's Nikkei added 0.8%, finishing just shy of six-month highs as traders returned to work following the extended holiday weekend. The weaker yen provided a boost for exporters as Honda Motor climbed 0.5% and Canon added 0.3%. 

·         Hong Kong's Hang Seng surged 1.7% to an eight-month high. Real estate developers led the way on word more cities were easing restrictions. China Overseas Land & Investment and China Resources Land rallied 4.4% and 3.2%, respectively. 

·         China's Shanghai Composite rose 1.0%, finishing at its best level in over a month. Automakers provided support after Beijing once again promoted electric and hybrid vehicles. BYD jumped 5.6% to lead the space higher. 

Major European indices trade higher across the board, attempting to recoup yesterday's losses, while regional foreign ministers are expected to discuss additional sanctions against Russia. 

·         Participants received just three data points: 

o    Switzerland's trade surplus narrowed to CHF1.377 billion from CHF2.849 billion (forecast CHF2.970 billion) 

o    CBI Industrial Trends Orders in Great Britain fell to 2 from 11 (forecast 8) and Public Sector Net Borrowing came in at GBP9.51 billion (expected GBP9.20 billion; previous GBP11.86 billion) 

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·         Great Britain's FTSE trades higher by 0.9% with ARM Holdings in the lead. The chipmaker trades up 4.9% after reporting in-line results. Staple stocks underperform with Tesco, J Sainsbury, and WM Morrison Supermarkets down between 0.9% and 3.7%. 

·         Germany's DAX holds an advance of 0.9%. Conglomerate Siemens outperforms with an increase of 1.7%, while Infineon Technologies follows not far behind (+1.6%). Adidas lags, down 0.8%. 

·         In France, the CAC is higher by 1.0%. Oil companies lead with Technip and Total up 2.7% and 2.0%, respectively. Publicis Groupe is lower by 5.2% following disappointing results. 

·         Italy's MIB is higher by 1.7% amid broad strength. Banco Popolare, Pirelli, and Saipem are up between 2.5% and 3.4%.

U.S. Equities

·         Futures suggest a strong open as earnings season kicks into high gear

·         Chipotle (CMG), Coca Cola (KO), Netflix (NFLX), McDonald's (MCD), Verizon (VZ) are among the names to watch following their quarterly releases

·         CPI (0.3% actual v. 0.3% expected)

·         Core CPI (0.1% actual v. 0.2% expected)

o    S&P Futures +9 @ 1975

o    Dow Futures +55 @ 17,038

o    Nasdaq Futures +20 @ 3946

Asia

·         Markets rallied across much of Asia

·         The Japanese government lowered its 2014 growth forecast to 1.2% (1.4% previous), citing weak demand from emerging markets 

·         Reserve Bank of Australia Governor Glenn Stevens reiterated the central bank's view that a period of stable rates is likely, and that animal spirits are needed to help the real economy

·         Japan's Nikkei (+0.8%) finished just shy of six-month highs as traders returned to work following the extended holiday weekend

·         Hong Kong's Hang Seng (+1.7%) surged to an eight-month high

·         China's Shanghai Composite (+1.0%) finished at its best level in over a month

·         India's Sensex (+1.2%) ended just short of all-time highs

·         Australia's ASX (+0.1%) ticked to its best closed in more than six years 

Market Internals

Market Internals -Technical-
The Nasdaq closed up 31 (+0.71%) at 4456, the S&P 500 closed up 10 (+0.50%) at 1984, and the Dow closed up 62 (+0.36%) at 17114. Action came on below average volume (NYSE 571 mln vs. avg. of 657; NASDAQ 1595 mln vs. avg. of 1663), with advancers outpacing decliners (NYSE 2153/980, NASDAQ 1817/895) and new highs outpacing new lows (NYSE 177/17, NASDAQ 91/31).

Relative Strength: 
China 25 Index-FXI +2.25%, Smart Grid Infrastructure-GRID +2.16%, Rare Earths-REMX +2.16%, India-INP +1.95%, Middle East and Africa-GAF +1.63%, U.S. Home Construction-ITB +1.57%, Livestock-COW +1.44%, Clean Energy-PBW +1.38%, BRICs-EEB +1.35%, Russia-RSX +1.25%.

Relative Weakness: 
Junior Gold Miners-GDXJ -2.83%, Natural Gas-UNG -2.25%, Coffee-JO -2.15%, Volatility-VXX -2%, Silver Miners-SIL 1.32%, Thailand-THD -0.89%, Austria-EWO -0.54%, Swiss Franc-FXF -0.46%, Indonesia-IDX -0.22%, New Zealand-ENZL -0.22%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries

Closing Market Summary: Small Caps Lead Stocks Higher
The stock market finished the Tuesday session on an upbeat note with small caps pacing the rally. The Russell 2000 advanced 0.8%, while the S&P 500 added 0.5% with eight sectors ending in the green.

Although geopolitical concerns factored into the modest retreat on Monday, the worries were cast aside today after separatist forces in eastern Ukraine handed over black boxes from MH17 to Malaysian authorities and Secretary of State John Kerry began working on brokering a cease fire in Gaza.

Furthermore, the sentiment was boosted by a slate of mostly better than expected earnings. Notably, Chipotle Mexican Grill (CMG 659.77, +69.84) soared 11.8% after beating estimates and surpassing comparable restaurant sales growth expectations. However, McDonald's (MCD 96.27, -1.28) painted a less upbeat picture with its stock falling 1.3% in reaction to below-consensus earnings and revenue. Elsewhere among consumer discretionary components, Comcast (CMCSA 54.63, +0.81) added 1.5% after reporting better than expected results.

While the discretionary space (+0.5%) contained a fair share of outperformers, energy (+0.8%) and health care (+0.8%) sectors hovered near the lead throughout the session. Energy rallied even as crude oil fell 0.5% to $102.35/bbl, while health care received support from biotechnology. The iShares Nasdaq Biotechnology ETF (IBB 253.68, +2.82) advanced 1.1%.

There was an added headline stir in the health care space as separate judicial rulings at the federal appellate level contradicted each other regarding the legality of subsidies received to help pay for health care via the federal exchanges. The initial ruling from a federal appeals court panel covering Washington D.C. ruled 2-1 that those subsidies are illegal. Soon thereafter, the 4th U.S. Circuit Court of Appeals ruled 3-0 that the subsidies are legal.

Despite the conflicting rulings, the sector held its ground, implying a belief that the initial ruling would not translate into law anytime soon (if at all). The second ruling helped validate that belief and likely set the stage for a review of the rulings by the full circuit court in both areas and potentially the Supreme Court. Unlike health care, other countercyclical sectors could not keep up with the broader market. The telecom services sector (+0.3%) eked out a slim gain, while consumer staples (-0.2%) and utilities (-0.2%) finished in the red.

The consumer staples sector lagged amid weakness in the shares of Coca-Cola (KO 41.19, -1.21). The Dow component lost 2.9% despite reporting a one-cent beat. Like Coca-Cola, another Dow component—United Technologies (UTX 110.86, -2.12)—also settled lower despite beating estimates.

The relative weakness among blue chip listings had little impact on the performance of high-beta names. Chipmakers (PHLX Semiconductor Index +0.7%), biotechnology (IBB +1.1%), and transport stocks (Dow Jones Transportation Average +1.1%) all finished ahead of the broader market, while the Russell 2000 regained its 50- and 100-day averages.

Treasuries retreated in the early morning, but reclaimed their losses during the day. The 10-yr note ended flat with its yield at 2.46%.

Participation was on the light side with less than 600 million shares changing hands at the NYSE.

Economic data included CPI, FHFA Housing Price Index, and Existing Home Sales: 

·         Consumer prices increased 0.3% in June, down from a 0.4% increase in May, which matched the Briefing.com consensus estimate 

o    As expected from the June PPI report, a strong increase in energy prices, up 1.6% in June, was the main catalyst for the overall increase in consumer prices. That was the largest increase in monthly energy costs since December 

o    Gasoline costs rose 3.3% after increasing 0.7% in May 

o    Food prices moderated a bit in June, increasing only 0.1% after growing by at least 0.4% per month since February 

o    Excluding food and energy, core CPI increased 0.1% in June after increasing 0.3% in May, while the consensus expected an increase of 0.2% 

·         The May Housing Price Index from the FHFA rose 0.4%, which followed a revised increase of 0.1% observed during the prior month (from 0.0%) 

·         Existing home sales increased to 5.04 million SAAR in June from an upwardly revised 4.91 million SAAR (from 4.89 million SAAR) in May, while the Briefing.com consensus an increase to 5.00 million SAAR 

o    This was the first time sales exceeded 5.00 million SAAR since October 2013. Still, sales are down 2.3% year-over-year 

Tomorrow, the weekly MBA Mortgage Index will be released at 7:00 ET. On the earnings front, participants will be reacting to results from Apple (AAPL 94.72, +0.78), Boeing (BA 129.74, +1.44), and Microsoft (MSFT 44.83, -0.01), among others. 

·         S&P 500 +7.3% YTD 

·         Nasdaq Composite +6.7% YTD 

·         Dow Jones Industrial Average +3.2% YTD 

·         Russell 2000 -0.7% YTD

Commodities

Closing Commodities: Oil prices slip, WTI Aug crude falls 0.7%, ending the day below $104/barrel

·         Aug gold fell for the first time in five sessions as the dollar index gained strength. The yellow metal popped to a session high of $1316.80 per ounce in early morning action but quickly slipped back into the red. It eventually settled with a 0.7% loss at $1306.10 per ounce.

·         Sep silver oscillated between positive and negative territory today. It traded as high as $21.12 per ounce after coming off its session low of $20.78 per ounce and settled at $21.00 per ounce, just once cent below the unchanged line. 

·         Aug crude oil brushed a session high of $105.01 per barrel in late afternoon floor trade after touching a session low of $103.87 per barrel. It slipped back into the red heading into the close and settled with a 0.7% loss at $103.89 per barrel. 

·         Aug natural gas extended losses for a fifth consecutive session. It pulled back from a session high of $3.83 per MMBtu and eventually settled at its session low of $3.77 per MMBtu, or 1.8% lower.

 COMEX Metals Closing Prices

·         Aug gold fell $7.80 to $1306.10/oz 

·         Sep silver fell $0.01 to $21.00/oz 

·         Sep copper rose 1 cent to $3.21/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Sep corn fell 4 cents to $3.60/bushel 

·         Sep wheat fell 5 cents to $5.25/bushel 

·         Aug soybeans rose 7 cents to $11.84/bushel 

·         Sep ethanol rose 1 cent to $1.99/gallon 

·         Sep sugar (#16 (U.S.)) rose 0.10 of a penny to 24.60 cents/lbs

NYMEX Energy Closing Prices

·         Aug crude oil fell $0.76 to $103.89/barrel 

·         Aug natural gas fell 7 cents to $3.77/MMBtu 

·         Aug heating oil fell 1 cent to $2.85/gallon 

·         Aug RBOB fell 1 cent to $2.88/gallon

Treasuries

30y Slips to 3.25%: 10-yr: unch..2.469%..USD/JPY:

·         Treasuries gained for the fifth time in six sessions. Click here to see an intraday yields chart.

·         Overnight weakness persisted into this morning's data with action hitting session lows before the in-line CPI (0.3%) report. 

·         The reading sparked a sharp rally to session highs before the FHFA Housing Price Index (0.4%) and existing home sales (5.04 mln actual v. 5.00 mln expected) figures sent yields back towards their best levels of the day.

·         However, buyers managed to regain control as the major averages stalled, sending yields back into the red. 

·         Today's bid had the biggest impact on the belly as the 5y slid -2.7bps to 1.658%. Action ended on minor support in the area that is helped by both the 50 and 100 dma.

·         The 10y fell -0.8bps to 2.466%. The benchmark yield finished just a couple of bps above the late-May closing low of 2.438%.

·         At the long end, the 30y eased -1.2bps to a 13-month low of 3.252%. 

·         Action must now contend with some support in the 3.200%/3.250% region. 

·         A slightly steeper curve developed as the 2-10-y spread widened to 200bps.

·         Precious metals slipped with gold -$7 @ $1307 and silver -$0.01 @ $21.00.

·         Data: MBA Mortgage Index (7).

On other news.... 

Currencies 

Dollar Contends with Five-Month Highs: 10-yr: unch..2.469%..USD/JPY: 101.46..EUR/USD: 1.3466

·         The Dollar Index drifts on session highs near 80.80. Click here to see a daily Dollar Index chart.

·         Today's bid has the Index higher for the seventh time in nine sessions and has action contending with its best close in more than five months.

·         EURUSD is -55 pips @ 1.3465 as trade looks likely to close at an eight-month low. The single currency saw some early selling pressure in response to a Eurostat report suggesting the euro area's debt load climbed to 93.9% of GDP. The inability to reclaim the 1.3500 level in a timely manner will be problematic.

·         GBPUSD is -15 pips @ 1.7060 as sellers remain in control for a fifth day. This morning's mixed public sector net borrowing and CBI Industrial Order Expectations data made for some overnight selling before pressing even lower in early U.S. trade. The latest Bank of England asset purchase facility votes and Official Bank Rate votes will be released tomorrow along with BBA Mortgage Approvals and CBI Realized Sales. Bank of England Governor Mark Carney will speak in Glasgow. 

·         USDCHF is +45 pips @ .9025 as trade readies for its best close in five and a half months. The narrower than expected Swiss trade balance has provided some support, but action continues to be dictated by movements in the euro. 

·         USDJPY is +5 pips @ 101.45 as light buying persists for a third day. Today's bid comes after the Japanese government lowered its 2014 growth forecast to 1.2% (1.4% previous) due to tepid demand from emerging economies. Resistance near 101.75 is guarded by the 50, 100, and 200 dma. 

·         AUDUSD is +20 pips @ .9390. Some early strength ran the pair to .9422, its best levels in more than two weeks; however, trade has slipped back into the .9350/.9400 range that has dominated for much of July. Australia's CPI is due out tonight. 

·         USDCAD is -5 pips @ 1.0735 as trade slips amid a lackluster session. Recent action has struggled near 1.0750, but the 1.0800 resistance area is of more importance. Canadian data scheduled for tomorrow is limited to retail sales.

Next Week In View




Economic Commentaries

Economic Summary: CPI in line with estimates; Existing Home Sales grow slightly faster than expected
Economic Data Summary:

·         June CPI 0.3% vs Briefing.com consensus of 0.3%; May was 0.4%

·         June Core CPI 0.1% vs Briefing.com consensus of 0.2%; May was 0.3%

o    As expected from the June PPI report, a strong increase in energy prices, up 1.6% in June, was the main catalyst for the overall increase in consumer prices. That was the largest increase in monthly energy costs since December. Gasoline costs rose 3.3% after increasing 0.7% in May. Food prices moderated a bit in June. Prices increased only 0.1% after growing by at least 0.4% per month since February.

·         May FHFA Housing Price Index 0.4% vs Briefing.com consensus of ; April was revised to 0.1% from 0.0%

·         June Existing Home Sales 5.04 mln vs Briefing.com consensus of 5.00 mln; May was revised to 4.91 mln from 4.89 mln

o     Distressed sales accounted for 11% of June sales, down from 15% a year ago. Investor sales, however, have not gone away. Sales to all-cash buyers accounted for 32% of existing home sales in June, up from 31% in June 2013. First-time homebuyers accounted for 28% of all sales, which was the same rate as June 2013. Without an acceleration in first-time buyers, existing home sales growth will likely remain tepid. Inventory levels improved in June, increasing 2.2% to 2.30 mln from 2.25 mln in May. 

Upcoming Economic Data:

·         Weekly MBA Mortgage Applications due out Wednesday at 7:00 (Briefing.com consensus of ; Last Week was -3.6%)

Other International Events of Interest

·         A Eurostat report indicated EU government debt increased to 93.9% of GDP in the euro area.

Jason's Commentaries

It came in quite unexpected that the Russells managed to staged such a bounce off the support level which eventually lead the whole market up much higher. Speaking of which, both Dow and S&P500 are at their all time high once again. It won't take much move to get both Dow and S&P500 above their all time high once again. Once again, the internals are showing divergence from the market movements and the only 2 laggards are the Utilities and the Staples. Healthcare, and Tech both led the market high last night. Looking at the economic data, there are not much economic data coming out in the market this week. I reckon the market will be focusing on the news coming out from Ukraine-Russia conflict. The market will be rather indifferent to the Israel's conflict. However, things might change if other middle east countries were to poke their nose into this matter. I suppose the momentum of yesterday's rally should carry over to Wednesday.








Market Call: FLAT to upside

Date: 23 July 2014